What's in Store for Restaurant Growth

This idea could be the thing that kicks store traffic to the next level.

Jan 6, 2014 at 10:36PM

The store-in-store restaurant concept isn't exactly new, as fast food and fast casual chains have staked out the fourth wall of just about every local superstore, but it remains fairly fertile ground for casual and family dining eateries and represents what could be their next big expansion opportunity.

We're probably all familiar with the Subway shops and McDonald's inside Wal-Mart, and the Starbucks stores that have taken over Target counters, but we really haven't seen the broader dining concepts in the space, because their menus and style may not be able to meet the needs of the customer on the go.

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That might be changing though. Last year, Bob Evans Farms (NASDAQ:BOBE) announced that it will experiment with a new, non-traditional restaurant concept to open licensed locations in hospitals, universities, airports, malls, and corporate cafeterias under a new Bob Evans Express banner. The first one actually opened inside a BMW manufacturing plant in South Carolina serving a combination of self-serve and prepared-to-order menu items, along with selections from all three of its day-parts menu, a fancy industry term that refers to breakfast, lunch, and dinner. A second one opened a short time later in its own corporate campus to serve as a learning center to expand the idea further.

The lines between restaurant, grocery store, and retail outlet are blurring as companies seek meaningful ways to capture greater amounts of the strained consumer's spending. The market watchers at NPD Group say restaurant traffic remained flat throughout 2013, although the average check was slightly higher than the year-ago period. It's looking a little better for this year, however, as traffic estimates run about 1% higher in 2014 with a 3% gain in spending.

Quick-serve restaurants, a category that covers both fast-food and fast-casual, fared the best with an 8% jump in traffic for the 12-month period ending in September, while categories like casual dining, midscale, and family dining haven't had any gains at all over the past few years despite a heavy promotional environment. 

Supermarkets like Kings Food Markets are developing restaurant-style dining experiences similar to Whole Foods Market, where you can shop for your groceries and also grab a bite to eat, and Tops Friendly Markets has had a Tim Hortons in some of its stores for years. 

Even pharmacy giant Walgreen (NASDAQ:WBA) began developing a line of fresh-food counters in its stores several years ago, showing there's greater acceptance of non-traditional stores. That means restaurants can reach more customers wherever they are while allowing them to expand their footprint at lower cost. Jamba (NASDAQ:JMBA), for example, is already a pretty minimalist concept when it comes to floor space, but it's adding JambaGo kiosks in schools and in Target stores in a bid to keep growing. Burger King Worldwide (NYSE:BKW) may be experimenting with perhaps the most non-traditional format: home delivery.

Restaurants that already face steep cost pressures find it hard to justify building new stores in the face of slow traffic numbers, while the store-in-store concept should allow them to meet their needs for expansion while letting someone else foot most of the bill for the building. That could be reason enough to pull a chair up to the buffet of restaurant stocks that undertake this initiative.

The future of retail
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John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool’s board of directors.

Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends BMW, Burger King Worldwide, McDonald's, Starbucks, and Whole Foods Market and owns shares of McDonald's, Starbucks, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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